Filling the gaps
FEATURE: POLITICAL VIOLENCE 21
Filling the gaps
With the recent terrorist attacks in Europe revealing a sizeable disparity between financial loss and insured loss, organisations across Mena are looking carefully at their policy wordings, drawing insurer and buyer closer together BY CHRIS HAWES
W
ith the insurance market across Mena stuck in a soft cycle and the threat of political violence (PV) and terrorism rising across the region, a number of insurers have begun to see an increased demand for suitable covers, including all related third-party and supply chain risks. Ranking as some of the world’s most risk-prone areas in both Marsh and Aon’s 2016 political risk surveys, Mena insurers are entrenching their cautious outlook for the region.
Landscape
Looking at how the political landscape across Mena has developed since 2015, a number of flashpoints can be identified. Russia’s entry into the Syrian civil war in September bolstered President Bashar al-Assad’s campaign and entrenched the international dimension of the conflict. Backed by Saudi Arabia and Turkey, the moderates have been losing ground to governmental forces throughout 2016 and increasing pressure on Turkish borders could see the two nations pulled into the conflict, setting them on a collision course with Russia. Meanwhile Egyptian president Abdel Fattah el-Sisi’s recent crackdown on civil liberties and protests has raised concerns of a repeat of the violence the country experienced in 2011. Despite these rising tensions, there has still been a lack of any significantly major loss events
021_022_MIR88_political violence.indd 21
in the PV and terrorism market. The perhaps overestimated exposures in some of the region’s safer regions has encouraged smaller market players to take on more and more risk at a much lower price, with some even offering to write business with as much as a 15-20% discount. “It’s difficult; there’s a lot of capacity in the market, a lot of players who want to write their own piece of business, and terrorism is a pretty safe harbour at the moment, says Kamil Mammadov, senior commercial property underwriter at AIG Mena. With certain competitive markets almost reaching their aggregate accumulation limits at the end of last year, reinsurers are also developing a significant appetite for the region’s PV and terrorism market. According to Garry Taylor, Middle East head of Bowring Marsh, “an increased number of buyers, increased limits and the repatriation of business to the region from London and elsewhere, has caused an upsurge in exposure for Mena reinsurers.” Speaking to a number of reinsurers operating in the area, however, there is an emergent apprehension around the standard of PV and terrorism covers being written. Sources suggest that an excessive amount of time and energy is now being expensed combing the small print on the deluge of polices coming across reinsurers desks, and a number of the market’s biggest players could be considering an exit.
05/05/2016 14:30
22 FEATURE: POLITICAL VIOLENCE
Increasing awareness
Gaps in the cover
For organisations across Mena, a growing awareness of PV and terrorism insurance has been stimulated by both heightened risk and a continued fall in the price of cover. According to Piers Gregory, terrorism underwriting manager for Chubb, “there’s probably been a twofold increase in the requirement for PV and terrorism covers since this time five years ago. Although given the market conditions we are currently facing, it’s important to point out we have also seen a significant increase in the rating of submissions aswell.” While traditionally there has been a view among regional companies of PV and terrorism insurance as an unnecessary commodity, Fawzi Omari, political violence underwriter for Chaucer, has begun to see a shift in client demographic. “With the expansion of terrorism, and the fact that more people are considering this type of cover, we are finding that local clients are wanting to buy cover, which is a reflection of the feeling ground,” he says. Similarly, Taylor states: “For buyers of PV policies, the market is advantageous (relative to past premiums and coverages), and insurers are starting to make strong returns.” However, according to Giles Hussey, head of Mena at Swiss Re Corporate Solutions, “a lot of the demand for terrorism insurance in this region still comes from lender backed projects and foreign investors.” Yet with falling oil prices curtailing investment in the region, combined with a wider awareness of the financial risks of terrorism, the disparity between international and local interest in PV and terrorism covers are slowly beginning to even out.
As terrorist threats across the region change and evolve, a dynamic approach to product development needs to be adopted to ensure clients are fully covered. “There is a lot of talk among clients about the gap between insured & uninsured losses at the moment,” Hussey says. The recent attacks in Paris and Brussels have gone a long way towards highlighting the gaps in most standard terrorism and PV covers. According to a recent report released by JLT RE, insurance has been “absorbing only a fraction of the economic impacts that have followed recent terrorist attacks”. The report goes on to lament insurers and reinsurers, who have been “slow to respond to evolving risk dynamics”, before stating that current products are not meeting the needs of corporations. The holes in coverage become even more relevant when we consider the levels of exposure of some of the countries across the Mena region, particularly within the energy sector. In Libya for example, while the total incurred losses as a result of war and terrorist attacks remain unknown, it is safe to assume that insured losses won’t come close to the estimated $50bn of production and export lost during the ongoing conflict. For Hussey, while products are available to transfer the risk of physical loss or damage to property following a PV or terrorist event, there is a growing demand for less traditional non-damage related products which could cover the wider economic losses caused by such events. Gregory identifies a similar trend: “They’re looking more at third party exposures, not just at their assets but what’s near their assets,” he says. “If an event occurs that limits the capabilities of these assets how will their product will respond.”
POLITICAL AND ECONOMIC RISK
Outlook
Source: BMI research
Short term
Long term
Operational risk
Country risk
Political
Economic
Political
Economic
Qatar
84.4
65.2
71
61.8
64.5
68.8
UAE
83.1
59.4
69
66.4
70.8
69.9
Saudi Arabia
70.8
54.8
57
69.2
62.1
62.7
Oman
79.8
48.8
68.9
56.1
63.2
63.4
Kuwait
72.7
65.4
68.4
64.1
57.1
64.1
Bahrain
72.9
48.8
63.5
61.3
62.9
62
Iran
56.9
49.2
54.9
41.4
42.2
47.8
Iraq
31.7
44.2
32.3
45.5
32.8
36.5
Yemen
22.1
17.1
31.1
26.9
27
25.2
Regional average
63.8
50.3
57.3
54.7
53.6
55.6
Global average
64.2
50.4
61.2
52.8
49.9
54.7
021_022_MIR88_political violence.indd 22
The ongoing instability across the Middle East has encouraged significant interest in PV and terrorism insurance covers. Yet this increased awareness has brought with it a rabble of new players to the market, leading to a spiral of price undercutting and poor market practice. While 2016 isn’t expected to see the usual 25-30% drop in prices, insurers are still preparing for anywhere between a 10-20% drop in premiums, as smaller players scrabble to add new business to their books. Nevertheless, as multinational organisations increasingly look to emerging markets to expand their geographic footprint, increasing product awareness is requiring insurers to look to new and innovative ways to reduce the gap between financial and insurable loss and in so doing, raising the standard for PV and terrorism products. n
05/05/2016 14:31
Filling the gaps
With the recent terrorist attacks in Europe revealing a sizeable disparity between financial loss and insured loss, organisations across Mena are looking carefully at their policy wordings, drawing insurer and buyer closer together BY CHRIS HAWES
W
ith the insurance market across Mena stuck in a soft cycle and the threat of political violence (PV) and terrorism rising across the region, a number of insurers have begun to see an increased demand for suitable covers, including all related third-party and supply chain risks. Ranking as some of the world’s most risk-prone areas in both Marsh and Aon’s 2016 political risk surveys, Mena insurers are entrenching their cautious outlook for the region.
Landscape
Looking at how the political landscape across Mena has developed since 2015, a number of flashpoints can be identified. Russia’s entry into the Syrian civil war in September bolstered President Bashar al-Assad’s campaign and entrenched the international dimension of the conflict. Backed by Saudi Arabia and Turkey, the moderates have been losing ground to governmental forces throughout 2016 and increasing pressure on Turkish borders could see the two nations pulled into the conflict, setting them on a collision course with Russia. Meanwhile Egyptian president Abdel Fattah el-Sisi’s recent crackdown on civil liberties and protests has raised concerns of a repeat of the violence the country experienced in 2011. Despite these rising tensions, there has still been a lack of any significantly major loss events
021_022_MIR88_political violence.indd 21
in the PV and terrorism market. The perhaps overestimated exposures in some of the region’s safer regions has encouraged smaller market players to take on more and more risk at a much lower price, with some even offering to write business with as much as a 15-20% discount. “It’s difficult; there’s a lot of capacity in the market, a lot of players who want to write their own piece of business, and terrorism is a pretty safe harbour at the moment, says Kamil Mammadov, senior commercial property underwriter at AIG Mena. With certain competitive markets almost reaching their aggregate accumulation limits at the end of last year, reinsurers are also developing a significant appetite for the region’s PV and terrorism market. According to Garry Taylor, Middle East head of Bowring Marsh, “an increased number of buyers, increased limits and the repatriation of business to the region from London and elsewhere, has caused an upsurge in exposure for Mena reinsurers.” Speaking to a number of reinsurers operating in the area, however, there is an emergent apprehension around the standard of PV and terrorism covers being written. Sources suggest that an excessive amount of time and energy is now being expensed combing the small print on the deluge of polices coming across reinsurers desks, and a number of the market’s biggest players could be considering an exit.
05/05/2016 14:30
22 FEATURE: POLITICAL VIOLENCE
Increasing awareness
Gaps in the cover
For organisations across Mena, a growing awareness of PV and terrorism insurance has been stimulated by both heightened risk and a continued fall in the price of cover. According to Piers Gregory, terrorism underwriting manager for Chubb, “there’s probably been a twofold increase in the requirement for PV and terrorism covers since this time five years ago. Although given the market conditions we are currently facing, it’s important to point out we have also seen a significant increase in the rating of submissions aswell.” While traditionally there has been a view among regional companies of PV and terrorism insurance as an unnecessary commodity, Fawzi Omari, political violence underwriter for Chaucer, has begun to see a shift in client demographic. “With the expansion of terrorism, and the fact that more people are considering this type of cover, we are finding that local clients are wanting to buy cover, which is a reflection of the feeling ground,” he says. Similarly, Taylor states: “For buyers of PV policies, the market is advantageous (relative to past premiums and coverages), and insurers are starting to make strong returns.” However, according to Giles Hussey, head of Mena at Swiss Re Corporate Solutions, “a lot of the demand for terrorism insurance in this region still comes from lender backed projects and foreign investors.” Yet with falling oil prices curtailing investment in the region, combined with a wider awareness of the financial risks of terrorism, the disparity between international and local interest in PV and terrorism covers are slowly beginning to even out.
As terrorist threats across the region change and evolve, a dynamic approach to product development needs to be adopted to ensure clients are fully covered. “There is a lot of talk among clients about the gap between insured & uninsured losses at the moment,” Hussey says. The recent attacks in Paris and Brussels have gone a long way towards highlighting the gaps in most standard terrorism and PV covers. According to a recent report released by JLT RE, insurance has been “absorbing only a fraction of the economic impacts that have followed recent terrorist attacks”. The report goes on to lament insurers and reinsurers, who have been “slow to respond to evolving risk dynamics”, before stating that current products are not meeting the needs of corporations. The holes in coverage become even more relevant when we consider the levels of exposure of some of the countries across the Mena region, particularly within the energy sector. In Libya for example, while the total incurred losses as a result of war and terrorist attacks remain unknown, it is safe to assume that insured losses won’t come close to the estimated $50bn of production and export lost during the ongoing conflict. For Hussey, while products are available to transfer the risk of physical loss or damage to property following a PV or terrorist event, there is a growing demand for less traditional non-damage related products which could cover the wider economic losses caused by such events. Gregory identifies a similar trend: “They’re looking more at third party exposures, not just at their assets but what’s near their assets,” he says. “If an event occurs that limits the capabilities of these assets how will their product will respond.”
POLITICAL AND ECONOMIC RISK
Outlook
Source: BMI research
Short term
Long term
Operational risk
Country risk
Political
Economic
Political
Economic
Qatar
84.4
65.2
71
61.8
64.5
68.8
UAE
83.1
59.4
69
66.4
70.8
69.9
Saudi Arabia
70.8
54.8
57
69.2
62.1
62.7
Oman
79.8
48.8
68.9
56.1
63.2
63.4
Kuwait
72.7
65.4
68.4
64.1
57.1
64.1
Bahrain
72.9
48.8
63.5
61.3
62.9
62
Iran
56.9
49.2
54.9
41.4
42.2
47.8
Iraq
31.7
44.2
32.3
45.5
32.8
36.5
Yemen
22.1
17.1
31.1
26.9
27
25.2
Regional average
63.8
50.3
57.3
54.7
53.6
55.6
Global average
64.2
50.4
61.2
52.8
49.9
54.7
021_022_MIR88_political violence.indd 22
The ongoing instability across the Middle East has encouraged significant interest in PV and terrorism insurance covers. Yet this increased awareness has brought with it a rabble of new players to the market, leading to a spiral of price undercutting and poor market practice. While 2016 isn’t expected to see the usual 25-30% drop in prices, insurers are still preparing for anywhere between a 10-20% drop in premiums, as smaller players scrabble to add new business to their books. Nevertheless, as multinational organisations increasingly look to emerging markets to expand their geographic footprint, increasing product awareness is requiring insurers to look to new and innovative ways to reduce the gap between financial and insurable loss and in so doing, raising the standard for PV and terrorism products. n
05/05/2016 14:31
